-LRB- CNN -RRB- -- Recently , investors celebrated the birthday of the current bull market , which turned five years old . On this anniversary , it 's worth reflecting on how valuations , particularly of technology companies , are being calculated .

On Thursday , the Wall Street Journal reported that Airbnb , a travel rental company , which has not released information about its revenue or profitability , may be approaching a valuation of $ 10 billion . Other startups in the IPO pipeline include a number of unprofitable companies like Box and Square , with rumored valuations in the billions .

Have billion-dollar or multibillion-dollar valuations become the norm ? Is it all about hype and greed nowadays ? Whatever happened to the wisdom of investors like Warren Buffet who evaluated companies based on their profits and fundamental performances ?

The value of any company is a function of the cash flow it will generate in the future . A healthy cash flow allows a company to repay its shareholders and initial investors who , understandably , expect their investment to be eventually reimbursed .

Ordinary investors who rely on the hype surrounding a company rather than the company 's fundamentals may make decisions that they regret later on . Just ask anyone who invested in the Pets.com IPO about the danger of falling for overvalued companies .

Granted , everyone in the tech industry -- from startup founders to venture capitalists -- is eager to find and bet on the next big thing . Still , the money being thrown around is mind-boggling .

Even a decent business model and the potential for growth do not justify a multibillion-dollar valuation . Yet , Facebook recently offered an astounding $ 19 billion to buy WhatsApp , a popular messaging service . Though WhatsApp has reportedly been able to turn a small profit , this overblown acquisition price is higher than the market cap of 275 companies in the S&P 500 .

Some market watchers have argued , as Michael Wolf did on CNN.com , that the WhatsApp acquisition is indicative of a fundamental shift , and that traditional `` old world '' methods of determining valuation have been replaced by `` new world '' metrics .

For example , Wolf cited Facebook 's acquisition of WhatsApp at $ 42 per user , which is in line with price-per-user acquisitions of companies like YouTube , Tumblr and Instagram . This is one way of looking at things , but it 's severely flawed .

The value of a customer is in the revenue the customer provides , not in his or her mere existence .

If we look at the price-per-user metric without evaluating revenue per customer , the analysis becomes eerily similar to the late 1990s , during the dotcom boom when , for example , number of `` eyeballs '' was a metric used to evaluate technology companies .

Counting `` eyeballs '' or `` user base '' or `` potential '' only works in a bull market when market momentum can make poor decisions seem wise . Perhaps we remember the NASDAQ 's high of 5048.62 , during the height of the tech boom , and not when it fell to 1114.11 in 2002 when the tech bubble burst .

But bull markets do not last forever , and it 's important to make sure we 're evaluating companies based on their long-term value , regardless of market cycle .

Of course , not all overvalued companies are `` bad '' companies . Twitter , for example , has a sizable user base , solid revenue growth and an undeniably disruptive and innovative technology . It 's safe to say that Twitter has a lot of potential . However , the company 's valuation is simply not justified by its fundamental performance . Twitter 's stock is trading at nearly 45 times its 2013 revenue , and its profit multiple -LRB- a company 's market value expressed in terms of its earnings -RRB- is nonexistent , given that it has yet to establish a profitable business model .

Sure , there are some companies , like Amazon , that do n't meet traditional metrics of financial strength that end up performing incredibly well in the stock market . But they are the exception , not the rule .

Consider the example of Vonage , one of the hottest IPOs of 2006 . Despite losing 97 cents of every dollar in sales , the company had a $ 2.6 billion valuation . The company 's fundamentals did not match its valuation . The results speak for themselves , with Vonage shares currently trading at $ 4.53 , down from their $ 17.00 IPO price .

We are forced to accede to the most logical and rational valuation methods ; otherwise , there is no structure to making investment decisions . For every Amazon , there are several Vonages .

Despite what some market watchers say , the `` old world '' method of valuing companies is still the best way of valuing companies .

I suppose it 's true that Christopher Columbus made a great discovery by sailing the wrong way around the earth trying to find India . Here is a case where somebody happened upon great success based on incorrect data and methods . However , investors placing their bets on tech companies without basic fundamentals are more likely to resemble Ponce de Leon : map-less and looking hopelessly for the Fountain of Youth .

The opinions expressed in this commentary are solely those of Brian Hamilton .

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Brian Hamilton : Have billion-dollar valuations of companies become the norm ?

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Hamilton : Even a decent business model does not justify such high numbers

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WhatsApp 's acquisition price is above market cap of 275 companies in S&P 500

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Hamilton : Investors should value companies based on fundamentals , like profitability